I need to preface this article with a few clarifications. I have taken a long sabbatical leave from partisan politics, andit is real fun watching the drama from the balcony. Having had my own share of public service (I do not need a job from government), I now devote my time and energy in pursuit of other passions, especially abroad.
A few days ago, I read an article in Thisday entitled “Where is Charles Soludo?”, and my answer is that I am still there, only that I have been too busy with extensive international travels to participate in or comment on our national politics and economy. But I occasionally follow events at home. Since the survival and prosperity of Nigeria are at stake, the least some of us (albeit, non-partisan) must do is to engage in public debate. As the elections approach, I owe a duty to share some of my concerns.
In September 2010, I wrote a piece entitled“2011 Elections: Let the Real Debate Begin” and published by Thisday. I understand the Federal Executive Council discussed it, and the Minister of Information rained personal attacks on me during the press briefing. I noted more than six newspaper editorials in support ofthe issues we raised.
Beside other issues we raised, our main thesis was that the macro economy was dangerously adrift, with little self-insurance mechanisms (and a prediction that if oil prices fell below $40, many state governments would not be able to pay salaries). I gave a subtle hint ateasy money and exchange rate depreciations because I did not want to panic the market with a strong statement. Sadly, on the eve of the next elections, literally everything we hinted at has happened. Part of my motivation for this article is that five years after, the real debate is still not happening.
The presidential election next month will be won by either Buhari or Jonathan. For either, it is likely to be a pyrrhic victory. None of them will be able to deliver on the fantastic promises being made on the economy, and if oil prices remain below$60, I see very difficult months ahead, with possible heady collisions with labour, civil society, and indeed the citizenry. To be sure, the presidential election will not be decided by the quality of ‘issues’ or promises canvassed by the candidates.
The debates won’t also change much (except if there is a major gaffe by either candidate like Tofa did in the debate with Abiola). My take is that more than 95% of the likely voters have pretty much made uptheir minds based largely on other considerations. A few of us remain undecided.
During my brief visit to Nigeria, I watched some of the campaign rallies on television.The tragedy of the current electioneering campaigns is that both parties are missingthe golden opportunity to sensitize the citizenry about the enormous challenges ahead and hence mobilize them for the inevitable sacrifices they would be called upon to make soon. Each is promising an El-Dorado.
Let me admit that the two main parties talkaround the major development challenges—corruption, insecurity, economy (unemployment/poverty, power, infrastructure, etc) health, education, etc. However, it is my considered view that none of them has any credible agenda to deal with the issues, especially within the context of the evolving global economy and Nigeria’s broken public finance.
The UK Conservative Party’s manifesto for the last election proudly announced that all its programmes were fully costed and were therefore implementable. Neither APCnor PDP can make a similar claim. A plan without the dollar or Naira signs to it is nothing but a wish-list. They are not tellingus how much each of their promises will cost and where they will get the money. None talks about the broken or near bankrupt public finance and the strategy tofix it.
Goodluck-Jonathan-newIn response to the question of where the money will come from, I heard one of the politicians say that the problem of Nigeria was not money but the management of resources. This is half-truth. The problem is both. No matter how efficient a father (with a monthly salary of N50,000) is at managing the family resources, I cannot see how he could deliver on a promise to buy a brand new Peugeot 406 for each of his three children in a year.Even with all the loopholes and waste closed, with increased efficiency per dollar spent, there is still a binding budget constraint. To deliver an efficient national transport infrastructure alone will still cost tens of billions of dollars per annum even by corruption-free, cost-effective means. Did I hear that APC promises a welfare system that will pay between N5,000 and N10,000 per month to the poorest 25 million Nigerians? Just this programme alone will cost between N1.5 and N3 trillion per annum.
Add to this the cost of free primary education plus free meal (to be funded by the federal budget or would it force non-APC state governments to implement the same?), plus some millions of public housing, etc. I have tried to cost some of the promises by both the APC and the PDP, given alternative scenarios for public finance and the numbers don’t add up. Nigerians would be glad to know how both parties would fund their programmes.
Do they intend to accentuate the huge public debt, or raise taxes on the soon to-be-beleaguered private businesses, or massively devalue the naira to rake in baskets of naira from the dwindling oil revenue, or embark on huge fiscal retrenchment with the sack of labour and abandonment of projects, and which areasof waste do they intend to close and how much do they estimate to rake in from them, etc?I remember that Chief Obafemi Awolowo was asked similar questions in 1978 and 1979 about his promises of free education and free medical services. Even as a teenager, I was impressed by how he reeled out figures about the amounts he would save from various ‘waste’ including the tea/coffee served in government offices. The point is that at least he did his homework and had his numbers and I give credit to his team.
Some 36 years later, the quality of political debate and discourse seems to border on the pedestrian. From the quality of its team, I did not expect much from the current government, but I must confess that I expected APC as a party aspiring to take over from PDP to come up with a knock-out punch. Evidently, from what we have read from the various versions of its manifesto as well as the depth of promises being made, it does not seem that it has a better offer.
Let me digress a bit to refresh our memory on where we are, and thus provide the context in which to evaluate the promises being made to us. Recall that the key word of the 2015 budget is ‘austerity’. Austerity? This is just within a few months of the fall in oil prices. History repeats itself in a very cruel way, as this was exactly what happened under the Shehu Shagari administration.
Under the Shagari government, oil price reached its highest in 1980/81. During the same period, Nigeria ratcheted up its consumption and all tiers of government were in competition as to which would out-borrow the other. Huge public debt was the consequence. When oil prices crashed in early 1982, the National Assembly then passed the Economic Stabilization (Austerity Measures) Act in one day— going through the first, second, and third readings the same day.
The austerity measures included the rationing of ‘essential commodities’ and most states owed salary arrears. Corruption was said to be pervasive, and as Sani Abacha said in that famous coup speech, ‘unemployment has reached unacceptable proportions and our hospitals have become mere consulting clinics’.
General Muhammadu Buhari/Tunde Idiagbon regime made the fight against corruption and restoration of discipline the cardinal point of their administration which lasted for 20 months. I am not sure they had a credible plan to get the economy out of the doldrums (although it must be admitted that poverty incidence in Nigeria as of 1985 when they left office was a just46%— according to the Federal Office of Statistics).We have come full circle. If the experience under Shagari could be excused as an unexpected shock, what Nigeria is going through now is a consequence of our deliberate wrong choices. We have alwaysknown that the unprecedented oil boom (in both price and quantity—despite oil theft) of the last six years is temporary but the government chose to treat it as a permanent shock. The parallels with the Shagari regime are troubling.
First, at the time of oil boom, Nigeria again went on a consumption spree such that the budgets of the last five years can best be described as ‘consumption budgets’, with new borrowing by the federal government exceeding the actual expenditure on critical infrastructure. Second, not one penny was added to the stock of foreign reserves at a period Nigeria earned hundreds of billions from oil.For comparisons, President Obasanjo met about $5 billion in foreign reserves, and the average monthly oil price for the 72 months he was in office was $38, and yet he left $43 billion in foreign reserves after paying $12 billion to write-off Nigeria’s external debt. In the last five years, the average monthly oil price has been over$100, and the quantity also higher but our foreign reserves have been declining and exchange rate depreciating.
I note that when I assumed office as Governor of CBN, the stock of foreign reserves was $10 billion. The average monthly oil price during my 60 months in office was $59, but foreign reserve reached the all-time peak of $62 billion (and despite paying $12 billion for external debt, and losing over $15 billion during the unprecedented global financial and economic crisis) I left behind $45 billion.
Recall also that our exchange rate continuously appreciated during this period and was at N117 to the dollar before the global crisis and we deliberately allowed it to depreciate in order to preserve our reserves. My calculation is that if the economy was better managed, our foreign reserves should have been between $102 –$118 billion and exchangerate around N112 before the fall in oil prices. As of now, the reserves should be around $90 billion and exchange rate no higher than N125 per dollar.Third, the rate of public debt accumulation at a time of unprecedented boom had no parallel in the world.
While the Obasanjo administration bought and enlarged the policy space for Nigeria, the current government has sold and constricted it.
What debt relief did for Nigeria was to liberate Nigerian policymakers from the intrusive conditionalities of the creditors and thereby truly allowing Nigeria independence in its public policy.How have we used the independence?
Through our own choices, we have yet again tied the hands of future policymakers. This time, the debt is not necessarily to foreign creditor institutions/governments which are organized under the Paris club but largely to private agents which is even more volatile. We call it domestic debt. But if one carefully unpacks the bond portfolio, what percentage of it is held by foreign private agents?
And I understand the Government had removed the speed bumps we kept to slow the speed of capital flight, and someone is sweating to explain the gyrations in foreign reserves. I am just smiling!In sum, the mismanagement of our economy has brought us once more to thebrink. Government officials rely on the artificial construct of debt to GDP ratio to tell us we can borrow as much as we want.
That is nonsense, especially for an economy with a mono but highly volatile source of revenue and forex earnings. The chicken will soon come home to roost.
Today, the combined domestic and external debt of the Federal Government is in excess of $40 billion. Add to this the fact that abandoned capital projects littered all over the country amount to over$50 billion. No word yet on other huge contingent liabilities. If oil prices continue to fall, I bet that Nigeria will soon have a heavy debt burden even with low debt to GDP ratio.
Furthermore, given the current and capital account regime, it is evident that Nigeria does not have enough foreign reserves to adequately cover for imports plus short term liabilities. In essence, we are approaching the classic of what the Shagari government faced, and no wonder the hasty introduction of ‘austerity measures’ again.
Fourth, poverty incidence and unemployment are also simultaneously at all-time high levels. According to the NBS, poverty incidence grew to 69% in 2010 and projected to be 71% in 2011, with unemployment at 24%. This is the worst record in Nigeria’s history, and the paradoxis that this happened during the unprecedented oil boom.
No comments:
Post a Comment